China’s chip champion SMIC appoints new chairman amid intensifying US scrutiny

Semiconductor Manufacturing International Corp (SMIC), seen as China’s best chance to achieve self-sufficiency in chips, has appointed a new chairman as it faces greater scrutiny from Washington and calls by some US lawmakers for tighter trade sanctions.

SMIC, listed on both the Shanghai and Hong Kong stock exchanges, appointed its chief financial officer Gao Yonggang as the new chairman of the board. Gao, who has been SMIC’s CFO since 2014, was named acting chairman last September after Zhou Zixue, who had served as chairman since 2015, resigned due to “health reasons”.

Mainland China’s biggest chip maker, SMIC is ranked as the world’s fifth-largest wafer foundry after Taiwan Semiconductor Manufacturing Co (TSMC), South Korea’s Samsung Electronics, Taiwan-based United Microelectronics Corp, and GlobalFoundries of the US, according to market intelligence firm TrendForce.

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The executive reshuffle at SMIC comes amid ongoing pressure from the US. On the same day of Gao’s appointment, US lawmakers Marco Rubio and Michael McCall urged the US Department of Commerce (DOC) to impose further trade restrictions on the company to “fortify American industry”.

That call came days after US Commerce Secretary Gina Raimondo warned SMIC and other Chinese chip makers that they faced being cut off from core US technologies if they defied Washington’s sanctions on Russia for its invasion of Ukraine.

Nonetheless, SMIC is experiencing huge demand for its mature node chip technologies amid a global semiconductor shortage. Gao said last month that SMIC’s priority in 2022 was “to keep up with the industry’s development and fill the gap of the structural shortage”, referring to the fact that its capacity was insufficient to meet demand.

SMIC was added to the so-called US entity list in December 2020 for alleged links to the Chinese military, a charge that it has repeatedly denied. Companies on the list must seek special approval from Washington before acquiring US technologies. As such, SMIC has faced delays in equipment deliveries due to the US restrictions, and has had to curb its R&D efforts on more advanced chip nodes.

A display of semiconductor wafers at the Semicon China conference in Shanghai in March 2021. Photo: Reuters alt=A display of semiconductor wafers at the Semicon China conference in Shanghai in March 2021. Photo: Reuters>

However, the restrictions have not stopped the company’s strong revenue growth. Its 2021 revenues rose 39 per cent year on year to US$5.44 billion, the fastest growth rate since 2010, while profits last year surged 138 per cent year on year to US$1.7 billion.

Like the rest of the semiconductor industry, SMIC has had to deal with talent losses in recent years, which has proved a drag on its R&D. SMIC’s staff turnover rate in 2020 was 17 per cent, although that was down from 22 per cent in 2018, according to its corporate social responsibility reports. In comparison, much bigger rival TSMC had a 15.7 per cent turnover in 2020, higher than its stated goal of keeping it to 13.5 per cent.

Just weeks after SMIC’s R&D vice president Wu Jingang quit last July, the company issued around 3.5 billion yuan (US$550 million) worth of stock options to almost 4,000 of its employees. Last November, former TSMC chip veteran Chiang Shang-yi resigned as vice chairman of SMIC, citing personal reasons.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.

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